Aviation Industry Faces Growth and Challenges as Aircraft Utilization Peaks
The aviation industry is navigating a complex recovery marked by record-high aircraft utilization, significant growth in the leasing market, and mounting financial pressures. While demand surges, production delays and regulatory costs highlight the challenges airlines face in adapting to an evolving landscape
After the pandemic, commercial aviation began a recovery that today struggles to maintain momentum. However, as demand increases, pressure on manufacturers to deliver new aircraft also grows. But quality issues and supply chain constraints have caused production rates not only to stagnate but, in Boeing’s case, to decline.
Thus, the aviation industry is preparing for significant growth in fleet utilization and aircraft leasing, although economic risks and financial pressures remain major challenges. The January 2025 Market Update from IBA and Technavio's latest report on the commercial aircraft leasing market reveal a landscape marked by recovery, expansion, and economic uncertainty.
Maximum utilization amid supply constraints
Aircraft utilization—measured as the number of hours/cycles an aircraft operates within a given period—has reached historic levels as airlines adapt to ongoing supply chain challenges. IBA reports that narrowbody aircraft aged 15 to 25 years have seen a significant increase in utilization. Older fleets are playing a key role in meeting demand. Aircraft retirement rates remain at historic lows, dropping from 2.2% in 2019 to 0.4% in 2024. This reflects operators’ strategic focus on extending fleet lifespans due to delays in new aircraft deliveries, which will not normalize until 2027.
Cargo aircraft activity and storage levels have also improved. The number of stored passenger aircraft decreased by 19.3% in 2024, signaling an increase in fleet deployment. However, the limited availability of aircraft has led to extended leasing agreements, now representing 75–80% of contracts, with normalization expected only by 2030.
Expansion of the leasing market
The commercial aircraft leasing market will grow by USD 20.93 billion between 2024 and 2028, with a CAGR (Compound Annual Growth Rate) of 9.45%, according to Technavio. Narrowbody aircraft dominate this segment due to their cost efficiency, versatility, and appeal to low-cost carriers. Aircraft such as the Airbus A320neo and Boeing 737 MAX are increasingly in demand for their fuel efficiency and operational flexibility, particularly in emerging markets.
Leasing provides airlines with financial flexibility, avoiding the capital burden of direct aircraft purchases. Major lessors like Aercap continue to lead the market, offering structures that support fleet modernization and operational agility. However, the market faces challenges, including maintenance costs, airline bankruptcies/suspensions, and price fluctuations in contracted aircraft lease rates.
Financial performance pressures
Despite the recovery in passenger demand, airlines face a deterioration in financial performance. IBA forecasts that global operating margins will decline from 8% in 2023 to 6% in 2025, driven by higher leasing rates and decreasing passenger yields. Leasing rates for models such as the A320neo and Boeing 737 MAX 8 will rise by more than 4% by January 2026, increasing financial pressure on operators already dealing with higher fuel costs and geopolitical uncertainty.
Economic risks, such as the strengthening of the US dollar and potential trade disputes, pose additional challenges. Airlines outside the US, which rely on the dollar for fuel, aircraft, and lease payments, are particularly vulnerable. Moreover, regulatory changes in Europe, such as SAF mandates and emissions trading systems, will increase fuel costs by 8% between 2025 and 2030, adding further financial strain.
Revenue Passenger Kilometers (RPKs) are expected to grow by 25.6% between 2025 and 2030, driven by stable economic growth and rising air travel demand in emerging markets like India. However, regional disparities persist. While Asia-Pacific and Latin America lead capacity expansion, Europe and China face slower growth due to structural challenges and economic risks.
Political risks, such as protectionism and trade barriers, could further hinder growth. For example, US trade policies might affect imports and exports, while geopolitical tensions continue to disrupt global supply chains. However, the leasing market and strategic airline adaptations highlight the sector's resilience and its ability to innovate amid uncertainty.
The global aviation industry is at a crossroads. While fleet utilization and the leasing market drive growth, financial pressures and economic risks remain significant concerns. The narrowbody aircraft leasing market is booming, but rising costs and regulatory burdens emphasize the need for careful financial and operational planning.
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